This is most likely an unpopular position, particularly since the metropolitan rail system offers a viable alternative to the public’s everyday commuting concerns. Let us explain our position on the matter.
First, the persistent and festering problems plaguing the MRT and LRT service cannot be reasonably solved if we continue the existing rate and level of government subsidy.
It has been politically expedient across successive administrations to subsidize the fares of Metro Manila train commuters. But the demonstrable mismanagement of this relatively small train system only corroborates the unsoundness of a policy that keeps fares below their economic value and marginal cost.
Train fares have stayed the same since 2003, even with the general price level nearly doubling since the beginning of 2000, while fares for other public transport modes (buses and jeepneys) have been adjusted periodically. However, train travel offers shorter and more predictable travel times, and thus should cost more. A sound fare policy will take into account the relative economic values (and competitive advantages) of every transport mode. Fare setting for the MRT-LRT and Philippine National Railways systems should not be done in isolation from the prevailing fares on non-train transport.
As a matter of equity and efficiency, fares should be set to the maximum extent possible, based on recovery of costs (operations and maintenance, or O&M) and the “users pay” principle. Government subsidy becomes justifiable only when full-cost recovery fares exceed the economic value of train travel, which by definition incorporates what the average commuter is willing and able to pay. New York City Transit prides itself on having the best recovery ratios in the United States, but manages to cover only 53% of its costs from rider fares.
When subsidies are misplaced, demand is distorted and unintended consequences abound. For example, a 2010 study showed that riders from the economically disadvantaged sector (with a monthly income of P8,000 or less) accounted for only one-third of Metro Manila train riders. The subsidy ends up benefiting, not the poor, but mainly non-poor riders who understandably flock to the cheapest transport alternative. This overflow of non-poor riders aggravates the strain on train system operations and maintenance, compounding the damage already caused by negligent management.
The 2015 budget already allocates P7.4 billion for MRT rehabilitation, while a supplemental 2014 budget contains nearly P1.2 billion for the rehabilitation of both MRT and LRT. Arguably, these funds, properly spent, might already suffice.
However, audits by international experts have confirmed that years of maintenance neglect have led to the deterioration of service quality and safety to dangerous levels.
The only other meaningful action proposed by certain transportation officials -- a government buyout of private equity interests in the MRT -- was a purely financial deal that only benefited the banks and none of the other stakeholders, most especially the riding public.
In an election year, given our patronage politics, the public has every right to worry that funds raised from the fare hikes might be diverted for partisan purposes. Such worries can only be aggravated by the lack of public consultation, transparency, and third-party oversight that surrounded the fare increase process.
In the end, misplaced subsidies do the biggest damage to those among us who have the lowest tolerance for wasted resources -- namely, the poor and economically disadvantaged. Thus, the Foundation supports not just the current fare hike, but also a series of successive fare hikes that will gradually phase out all misplaced government subsidies to Metro Manila’s train system and contribute to full rationalization of relative pricing among the various transport alternatives. The P2.3 billion of subsidy savings expected from this first fare hike is a good start, but it is only a start.
Second, we need measures that will address this subsidy concern.
Policy reforms must be instituted so that future fare setting is insulated from political grandstanding, system management is professionalized, and the present train network can expand from its current size of 79 kilometers to more than 200 kilometers by the year 2030.
Consider setting up a multisectoral oversight body -- to include civil society, the business sector, and international experts -- as a confidence builder for the public and an additional resource for the evidently inadequate Department of Transportation and Communications.
Immediately replace the current maintenance contractor with a globally reputable provider equivalent in quality to Sumitomo, the previous contractor.
Agree upon clear rehabilitation and maintenance milestones, with corresponding rewards and sanctions for over- and under-performance. People’s heads must be put on the line. Clearly specify where the additional funds generated from freed-up subsidy monies are to be used within the overall transportation sector.
Innovate additional revenue sources and cost savings in order to minimize fare hike requirements. On the revenue side, real estate and signage deals come to mind. On the cost side, automation and integration of all fare collection processes must be expedited as one of the performance milestones.
Good ideas, like train fare hikes, must not be dragged down by bad managers, bureaucrats and politicians. Sound economic policy must not be held hostage by unsound governance.
The issue of increases in the MRT and LRT fares continues to occupy media space, the streets, and the courts. I yield this space to a recent statement on this by the Foundation for Economic Freedom, an advocacy group for market-friendly reforms and good governance. While the statement is focused on tariff adjustments for MRT-LRT to achieve utmost equity and efficiency, the thinking applies with equal force to other infrastructure with both private and public benefits -- toll roads, water, power, trains, ports, airports, etc. Infrastructure inadequacy has been tagged as a top binding constraint to the country’s sustainable and inclusive growth.
An unspoken message in the statement is that the private sector will be discouraged from investing in such much-needed public-private partnership infrastructure if tariff setting impedes proper maintenance and cost recovery, and is politicized. And at the end of the day, what is the most expensive water, power or road network? Not having any:
Romeo Bernardo is Philippine GlobalSource advisor and is a board director of IDEA.
romeo.lopez.bernardo@gmail.com
First, the persistent and festering problems plaguing the MRT and LRT service cannot be reasonably solved if we continue the existing rate and level of government subsidy.
It has been politically expedient across successive administrations to subsidize the fares of Metro Manila train commuters. But the demonstrable mismanagement of this relatively small train system only corroborates the unsoundness of a policy that keeps fares below their economic value and marginal cost.
Train fares have stayed the same since 2003, even with the general price level nearly doubling since the beginning of 2000, while fares for other public transport modes (buses and jeepneys) have been adjusted periodically. However, train travel offers shorter and more predictable travel times, and thus should cost more. A sound fare policy will take into account the relative economic values (and competitive advantages) of every transport mode. Fare setting for the MRT-LRT and Philippine National Railways systems should not be done in isolation from the prevailing fares on non-train transport.
As a matter of equity and efficiency, fares should be set to the maximum extent possible, based on recovery of costs (operations and maintenance, or O&M) and the “users pay” principle. Government subsidy becomes justifiable only when full-cost recovery fares exceed the economic value of train travel, which by definition incorporates what the average commuter is willing and able to pay. New York City Transit prides itself on having the best recovery ratios in the United States, but manages to cover only 53% of its costs from rider fares.
When subsidies are misplaced, demand is distorted and unintended consequences abound. For example, a 2010 study showed that riders from the economically disadvantaged sector (with a monthly income of P8,000 or less) accounted for only one-third of Metro Manila train riders. The subsidy ends up benefiting, not the poor, but mainly non-poor riders who understandably flock to the cheapest transport alternative. This overflow of non-poor riders aggravates the strain on train system operations and maintenance, compounding the damage already caused by negligent management.
The 2015 budget already allocates P7.4 billion for MRT rehabilitation, while a supplemental 2014 budget contains nearly P1.2 billion for the rehabilitation of both MRT and LRT. Arguably, these funds, properly spent, might already suffice.
However, audits by international experts have confirmed that years of maintenance neglect have led to the deterioration of service quality and safety to dangerous levels.
The only other meaningful action proposed by certain transportation officials -- a government buyout of private equity interests in the MRT -- was a purely financial deal that only benefited the banks and none of the other stakeholders, most especially the riding public.
In an election year, given our patronage politics, the public has every right to worry that funds raised from the fare hikes might be diverted for partisan purposes. Such worries can only be aggravated by the lack of public consultation, transparency, and third-party oversight that surrounded the fare increase process.
In the end, misplaced subsidies do the biggest damage to those among us who have the lowest tolerance for wasted resources -- namely, the poor and economically disadvantaged. Thus, the Foundation supports not just the current fare hike, but also a series of successive fare hikes that will gradually phase out all misplaced government subsidies to Metro Manila’s train system and contribute to full rationalization of relative pricing among the various transport alternatives. The P2.3 billion of subsidy savings expected from this first fare hike is a good start, but it is only a start.
Second, we need measures that will address this subsidy concern.
Policy reforms must be instituted so that future fare setting is insulated from political grandstanding, system management is professionalized, and the present train network can expand from its current size of 79 kilometers to more than 200 kilometers by the year 2030.
Consider setting up a multisectoral oversight body -- to include civil society, the business sector, and international experts -- as a confidence builder for the public and an additional resource for the evidently inadequate Department of Transportation and Communications.
Immediately replace the current maintenance contractor with a globally reputable provider equivalent in quality to Sumitomo, the previous contractor.
Agree upon clear rehabilitation and maintenance milestones, with corresponding rewards and sanctions for over- and under-performance. People’s heads must be put on the line. Clearly specify where the additional funds generated from freed-up subsidy monies are to be used within the overall transportation sector.
Innovate additional revenue sources and cost savings in order to minimize fare hike requirements. On the revenue side, real estate and signage deals come to mind. On the cost side, automation and integration of all fare collection processes must be expedited as one of the performance milestones.
Good ideas, like train fare hikes, must not be dragged down by bad managers, bureaucrats and politicians. Sound economic policy must not be held hostage by unsound governance.
The issue of increases in the MRT and LRT fares continues to occupy media space, the streets, and the courts. I yield this space to a recent statement on this by the Foundation for Economic Freedom, an advocacy group for market-friendly reforms and good governance. While the statement is focused on tariff adjustments for MRT-LRT to achieve utmost equity and efficiency, the thinking applies with equal force to other infrastructure with both private and public benefits -- toll roads, water, power, trains, ports, airports, etc. Infrastructure inadequacy has been tagged as a top binding constraint to the country’s sustainable and inclusive growth.
An unspoken message in the statement is that the private sector will be discouraged from investing in such much-needed public-private partnership infrastructure if tariff setting impedes proper maintenance and cost recovery, and is politicized. And at the end of the day, what is the most expensive water, power or road network? Not having any:
Romeo Bernardo is Philippine GlobalSource advisor and is a board director of IDEA.
romeo.lopez.bernardo@gmail.com
source: Businessworld
No comments:
Post a Comment